Environmental policy competition and differential tax treatment; a case for tighter coordination?
AbstractThe Kyoto Protocol binds the level of greenhouse gas emissions in participating countries. It does not, however, dictate how the countries are to achieve this level. The economic costs of reaching emission targets are generally evaluated to be low. For example, evaluations with applied general-equilibrium models estimate the costs to be in the range of 0.2% to 0.5% of GDP, when international trade in emissions rights among governments is allowed for. We argue that important costs are overlooked since governments have an incentive to choose highly distorting tax schemes. This paper shows that governments generally choose different energy tax rates for households and for internationally operating firms as the result of tax competition or pollution competition: in the first case, governments try to undercut other governments to attract firms to their country, whereas in the second, they try to push dirty industries across the border. In both cases, the incentive for firms and households to use or save energy is different at the margin. Both cases call for coordination of climate change policies that goes beyond a binding ceiling on greenhouse gas emissions and international trade in permit rights among governments alone.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Discussion Paper with number 50.
Date of creation: Oct 2005
Date of revision:
Find related papers by JEL classification:
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-03-18 (All new papers)
- NEP-ENE-2006-03-18 (Energy Economics)
- NEP-ENV-2006-03-18 (Environmental Economics)
- NEP-PBE-2006-03-18 (Public Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ottaviano, Gianmarco Ireo Paolo & van Ypersele, Tanguy, 2002. "Market Access and Tax Competition," CEPR Discussion Papers 3638, C.E.P.R. Discussion Papers.
- Davis, Donald R, 1998.
"The Home Market, Trade, and Industrial Structure,"
American Economic Review,
American Economic Association, vol. 88(5), pages 1264-76, December.
- Donald R. Davis, 1997. "The Home Market, Trade and Industrial Structure," Harvard Institute of Economic Research Working Papers 1800, Harvard - Institute of Economic Research.
- Donald R. Davis, 1997. "The home market, trade, and industrial structure," Staff Reports 35, Federal Reserve Bank of New York.
- Donald R. Davis, 1997. "The Home Market, Trade, and Industrial Structure," NBER Working Papers 6076, National Bureau of Economic Research, Inc.
- Davis, D.R., 1997. "The Home Market, Trade, and Industrial Structure," Papers 597, Harvard - Institute for International Development.
- David M Newbery, 1992. "Should Carbon Taxes Be Additional to Other Transport Fuel Taxes?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 49-60.
- Baldwin, Richard & Krugman, Paul, 2000.
"Agglomeration, Integration and Tax Harmonization,"
CEPR Discussion Papers
2630, C.E.P.R. Discussion Papers.
- Richard E. Baldwin & Paul Krugman, 2002. "Agglomeration, Integration and Tax Harmonization," NBER Working Papers 9290, National Bureau of Economic Research, Inc.
- Richard Baldwin; Paul Krugman, 2001. "Agglomeration, Integration and Tax Harmonization," IHEID Working Papers 01-2001, Economics Section, The Graduate Institute of International Studies.
- Hoel, Michael, 1997. " Environmental Policy with Endogenous Plant Locations," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(2), pages 241-59, June.
- Daron Acemoglu & Jaume Ventura, 2002.
"The World Income Distribution,"
The Quarterly Journal of Economics,
MIT Press, vol. 117(2), pages 659-694, May.
- Dixit, Avinash K & Stiglitz, Joseph E, 1977.
"Monopolistic Competition and Optimum Product Diversity,"
American Economic Review,
American Economic Association, vol. 67(3), pages 297-308, June.
- Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
- Raymond J.G.M. Florax & Abay Mulatu & Cees A. Withagen, 2003. "Optimal Environmental Policy Differentials under Emissions Constraints," Tinbergen Institute Discussion Papers 03-080/3, Tinbergen Institute.
- N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
- Michael Rauscher, 1995. "Environmental regulation and the location of polluting industries," International Tax and Public Finance, Springer, vol. 2(2), pages 229-244, August.
- Pfluger, Michael, 2001. " Ecological Dumping under Monopolistic Competition," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(4), pages 689-706, December.
- Rauscher, Michael, 1994. "Environmental Regulation and the Location of Polluting Industries," CEPR Discussion Papers 1032, C.E.P.R. Discussion Papers.
- Rietveld, Piet & van Woudenberg, Stefan, 2005. "Why fuel prices differ," Energy Economics, Elsevier, vol. 27(1), pages 79-92, January.
- Richter, Wolfram F. & Schneider, Kerstin, 2003. "Energy taxation: Reasons for discriminating in favor of the production sector," European Economic Review, Elsevier, vol. 47(3), pages 461-476, June.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.